MANAGEMENT DISCUSSION AND ANALYSIS REPORT 1 Economic review Global growth in 2014 was lower than initially expected, continuing a pattern of disappointing outturns over the past several years. At the same time, demand for oil has weakened due to the slowdown worldwide. However, the overall economic situation in the country is looking better and the basic parameters of the Indian economy are moving in the right direction. According to the Indian Finance Ministry, the annual growth rate of the Indian economy is projected to have increased to 7.4% in 2014-15 as compared with 6.9% in the fiscal year 2013-14 (The new growth numbers have been arrived at after a revision of the way GDP is calculated in India.) Indian inflation has moderated sharply as global oil prices have slumped since last year. Further, with inflation being at a record low has increased the possibility of the reduction in interest rates, which will further boost the overall Indian economy. Government of India has launched the "Make in India" campaign, which includes major new initiatives designed to facilitate investment, promote innovation, protect intellectual property and build best-in-class manufacturing infrastructure. There is also an increased emphasis on reducing entry barriers by introducing new de-licensing and deregulation measures thereby reducing complexity and significantly increasing the ease of doing business. 2 Industry Structure and Developments Real estate is a critical sector for India's economy due to its large potential for employment generation, capital attraction and revenue generation for the Government. After witnessing fluctuating business cycles in the last decade, the real estate sector witnessed a slowdown in FY15 due to moderate end user demand, rising inventory and high finance costs. However, despite adverse sector dynamics, prices were resilient in most cities and have dropped only in select micro markets. Capital values of properties have risen in-exorbitantly which has created affordability concerns in some markets. The property prices remained elevated in Mumbai largely because developers were hit hard by the increased cost of construction and debt. The developers had no option to hold on to selling prices to cover up augmented prices of land parcel, high input cost and increased cost of funding. To cope with this reduced demand and high pricing, developers are now reducing the sizes of apartments in new projects in order to target mid income customers. A number of factors are expected to contribute to the growth of housing demand in India. Chief among them are rapid urbanisation rates, a decreasing average household size and easier availability of home loans. The new Government is expected to drive reforms and regulations that are long overdue. The recent policy measures to relax Foreign Direct Investment (FDI) norms, provide housing for all by 2022, create 100 smart cities and approve Real Estate Investment Trusts (REITs) have boosted the confidence of stakeholders. 3 Opportunities and Threats Opportunities As India awaits policy reforms to pick up speed, your Company firmly believes that the demand for Real Estate in a country like India should remain strong in the your Company's well designed strategy and focus on making sound and informed strategic decisions catering to the market requirements makes it a much brferred choice for customers and shareholders medium to long term. Your company is ideally placed to further strengthen its development potential by acquiring new land parcels. Emergence of nuclear families and growing urbanization has given rise to several townships that are developed to take care of the elderly people. Growth in the number of tourists has resulted in demand for service apartments. The sector is hoping for removal of dividend distribution tax on distribution of profits by special purpose vehicle to REITS, removal of tax deducted at source on distribution of income by business trust non-residents and exemption from stamp duty on transfer of asset to REITs. Threats- While the management of your Company is confident of creating and exploiting the opportunities, it also finds threats on account of unanticipated delays in project approvals, Availability of accomplished and trained labour force, increased cost of manpower, rising cost of construction and over-regulated environment. Unclear regulatory environment at local levels and poor consumer sentiment continue to remain threat to the profitability in the real estate sector. This may prove to be hindrance for taking advantage of the opportunities in Real Estate Sector. Current economic situation may have an adverse impact on construction industry. Political and security conditions in the micro region and delay in implementing legislative measures are always threats to any industry in India. Natural abnormal causalities such as earthquake and floods are uncertain and can be an obstacle for the Real Estate Sector. 4. Segment wise or product wise performance The Company operates into three segments 1) Real Estate 2) Power Generation 3) Financing. Revenue from Real Estate will be accounted as per guidance note issued by ICAI, which states that as per percentage completion method revenue is to be recognized only if all the three conditions are fulfilled viz. a) When the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25% of the construction and development costs. b) At least 25% of the saleable project area is secured by contracts or agreements with buyers. c) At least 10% of the total revenue as per the agreements of sale or any other legally enforceable documents are realized at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. However, the company has not incurred 25% of the construction and development cost and hence, not recognized the revenue for the financial year 2014-2015. Revenue from Power Generation has increased from brvious year Rs. 213.22 lacs to current year Rs. 269.18 lacs. The Revenue from Financing has increased from Rs. 1229.66 lakhs in FY 2013-14 to Rs. 4072.14 lakhs in FY 2014-15. The Company has during the year accounted hold back amount of Rs. 500 (Rupees Five Hundred Lakhs) i.e. Extra Ordinary Income of Rs. 500 Lakhs is on account of write back of provision for hold back made in FY 2009-10 at the time of sale of Chemical Business for completion of certain post-closing conditions. The Company has been successfully able to complete those conditions and hence the provision is no longer required. 5. Future outlook The long-awaited amendments to the Real Estate (Regulation and Development) Bill were cleared by the Cabinet on April 7, 2015. This is another move of the Government of India geared towards achieving the objective of providing housing for all by 2022. In a recent development, the Union Cabinet passed the amendments to the Real Estate Regulatory Bill. This will further help to boost the real estate market. In 2015, economic activity is picking pace and this expectation is in keeping with the developments taking place in the sector currently. Your Company will strive to ensure the completion of the projects undertaken within the requisite timeline. 6. Risks & Concerns The Company has a well-structured and robust risk management mechanism which continuously evaluates risk mitigation on an ongoing basis. The risk management system is working smoothly and will be evaluated for stress test or modification upon change in size or nature of business. The Risk Management System is reviewed periodically and necessary changes are made, if required. The Company faces risks in real estate sector business mainly on account of following factors: A Market price fluctuation: The performance of your Company may be affected by the sales realizations of its projects. These prices are driven by brvailing market conditions, the nature and location of the projects, and the design of the projects. Your company follows a prudent business model and tries to ensure steady cash flow even during adverse pricing scenario. B Sales: The volume of bookings depends on the ability to design projects that will meet customer brferences, getting various approvals in time, general market factors, project launch and customer trust in entering into sale agreements well in advance of receiving possession of the projects. Your Company sells its projects in phases from the time it launches the project, based on the type and scale of the project and depending on market conditions. C Execution: Execution depends on several factors which include labour availability, raw material prices, receipt of approvals and regulatory clearances, access to utilities such as electricity and water, weather conditions and the absence of contingencies such as litigation. Your Company manages the adversities with cautious approach, meticulous planning and by engaging established and reputed contractors. As your Company imports various materials, at times execution is also dependent upon timely shipment and clearance of the material. D Land / Development rights - costs and availability: The cost of land forms a substantial part of the project cost, particularly in Mumbai. It includes amounts paid for freehold rights, leasehold rights, fungible FSI, construction cost of area given to landlords in consideration for development rights, registration and stamp duty. Your Company acquires land / land development rights from the government and/or private parties. It ensures that the consideration paid for the land is as per the brvailing market conditions, reasonable and market timed. Your Company also enters into MOUs and makes advances for the land / land development rights prior to entering into definitive agreements. The ensuing negotiations may result in either a transaction for the acquisition of the land / land development rights or the Company getting a refund of the moneys advanced. 7. Internal Control Systems and their Adequacy The Company has an adequate system of internal control to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorized, recorded and reported correctly, financial and other data are reliable for brparing financial information and other data and for maintaining accountability of assets. The internal control is supplemented by extensive program of internal audits, review by management, documented policies, guidelines and procedures. The system has been designed to ensure that financial and other records are reliable for brparing financial information and for maintaining accountability of assets. All financial and audit control systems are also reviewed by the Audit Committee of the Board of Directors of the Company. 8. Financial and Operational Performance The Company has an adequate system of internal control to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorised, recorded and reported correctly, financial and other data are reliable for brparing financial information and other data and for maintaining accountability of assets. The internal control is supplemented by extensive program of internal audits, review by management, documented policies, guidelines and procedures. The system has been designed to ensure that financial and other records are reliable for brparing financial information and for maintaining accountability of assets. All financial and audit control systems are also reviewed by the Audit Committee of the Board of Directors of the Company. 9. Human Resource Management Your company's closing headcount for the FY2014-15 was 31 employees excluding directors. The Company's business is managed by a team of competent and passionate people capable of enhancing your Company's standing in the competitive market. The Company's focus is on unlocking the people potential and further developing their functional, operational and behavioral competencies. The relations with all employees of the Company remained cordial and there were no significant issues outstanding or remaining unresolved during the year. The Board of Directors and the Management wishes to place on record their apbrciation of the efforts put in by all the employees. The ultimate aim of the management is to create a dependable work force that will pay a key role in assisting the Company to achieve its goals in the various new business opportunities the Company is pursuing. To achieve the highest levels of organizational performance Company has a well exercised approach to organizational and personal learning that includes sharing knowledge via systematic processes. Organizational learning includes both continuous improvement of existing approaches and significant change of innovation leading to new goals and approaches. 10. Cautionary Statements Statements in this report on Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed or implied. Important developments that could affect the Company's operations include a down trend in the real estate sector, significant changes in political, economical and agricultural environment in India, tax laws, import duties, litigation and labour relations and interest costs. The Company assumes no responsibility nor is under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events. |